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Monday, January 08, 2007

Iraq could open oil reserves to foreign firms

LONDON (AFP) -

Iraq is preparing to allow foreign companies to exploit its oil reserves, according to a British newspaper report that cited a draft law expected to come before the Iraqi parliament.

The Independent on Sunday report says the US government has been involved in drawing up the law through a consultancy firm.

The early draft, circulated in English to oil companies in July 2006 and leaked to the newspaper, would offer oil companies vastly better terms than the industry norm for investing in the war-torn country.The production-sharing agreements (PSAs) would allow oil giants to sign 30-year contracts for extracting Iraqi oil.

Under PSAs, the state retains legal ownership of its oil but gives a share of the profits to companies that invest in infrastructure and in operating the wells, pipelines and refineries.

The Independent on Sunday said that under the draft law, oil companies could recoup 60 to 70 percent of revenue until initial costs had been recovered, which compares to around 40 percent usually, the newspaper said.Following that, oil firms could be allowed to keep up to 20 percent of profits, rather than the more usual 10 percent, the weekly said, citing experts.

Experts said that oil giants would not descend immediately on Iraq, preferring to wait for the country to regain some level of stability, while only small, maverick producers would risk activity there in the short term.The draft law would allow for the first foreign exploitation of Iraqi oil reserves since the industry was nationalised in 1972.

The introduction of PSAs would also be a first in the Middle East.

Oil accounts for 95 percent of the Iraqi economy, the newspaper said.

Iraq's oil reserves, estimated at 115 billion barrels, are the third largest in the world, behind Saudi Arabia andIran' which both tightly control their industries through state-owned companies, it added.

Since the US-led invasion of Iraq in March 2003, Iraqi production has tumbled from 3.5 million barrels per day to two million nowadays.